Podcast
Questions and Answers
What is one condition necessary for price differentiation to be effective?
What is one condition necessary for price differentiation to be effective?
Absorption target pricing includes both variable and fixed costs.
Absorption target pricing includes both variable and fixed costs.
True
What formula represents absorption target pricing?
What formula represents absorption target pricing?
VC + FC + NP
Price differentiation aims to maximize _______ in different markets.
Price differentiation aims to maximize _______ in different markets.
Signup and view all the answers
In the example provided, what was the variable cost per chair?
In the example provided, what was the variable cost per chair?
Signup and view all the answers
In absorption target pricing, NP represents _______.
In absorption target pricing, NP represents _______.
Signup and view all the answers
How much did the Green Spiders buy each soft drink for?
How much did the Green Spiders buy each soft drink for?
Signup and view all the answers
Match the following pricing terms with their descriptions:
Match the following pricing terms with their descriptions:
Signup and view all the answers
What is a disadvantage of absorption target pricing?
What is a disadvantage of absorption target pricing?
Signup and view all the answers
Marginal cost pricing can lead to lower prices when there is unused production capacity.
Marginal cost pricing can lead to lower prices when there is unused production capacity.
Signup and view all the answers
What is the definition of marginal cost?
What is the definition of marginal cost?
Signup and view all the answers
Absorption target pricing is advantageous if your costs are _____ as a business.
Absorption target pricing is advantageous if your costs are _____ as a business.
Signup and view all the answers
Which situation typically leads to an increase in the price under marginal cost pricing?
Which situation typically leads to an increase in the price under marginal cost pricing?
Signup and view all the answers
Match the pricing strategy with its description:
Match the pricing strategy with its description:
Signup and view all the answers
What is a potential consequence of high costs when using absorption target pricing?
What is a potential consequence of high costs when using absorption target pricing?
Signup and view all the answers
What does the variable pricing strategy primarily involve?
What does the variable pricing strategy primarily involve?
Signup and view all the answers
A business can benefit from absorption target pricing even with high sales estimates.
A business can benefit from absorption target pricing even with high sales estimates.
Signup and view all the answers
Price differentiation means setting the same price for all market segments.
Price differentiation means setting the same price for all market segments.
Signup and view all the answers
What strategy would you use to increase the price of a product when demand is high?
What strategy would you use to increase the price of a product when demand is high?
Signup and view all the answers
Variable pricing can be used to _____ the price when there is an urgency to offload inventory.
Variable pricing can be used to _____ the price when there is an urgency to offload inventory.
Signup and view all the answers
Which of the following is NOT a strategy for pricing discussed?
Which of the following is NOT a strategy for pricing discussed?
Signup and view all the answers
Match each pricing strategy to its description:
Match each pricing strategy to its description:
Signup and view all the answers
Absorption target pricing focuses solely on competitor pricing.
Absorption target pricing focuses solely on competitor pricing.
Signup and view all the answers
In variable pricing, what happens to prices when supply is low?
In variable pricing, what happens to prices when supply is low?
Signup and view all the answers
Study Notes
Variable Pricing
- Flexible pricing strategy based on supply and demand
- Lower prices when needing to quickly sell excess inventory (e.g., expiring products)
- Raise prices when demand is high or supply is low
Price Differentiation
- Charging different prices for the same product in different markets
- Possible markets include different countries, demographics, or types of buyers
- Requires customers being unaware or unconcerned about price variations
- Requires barriers to entry, like tariffs or laws, to prevent consumers/competitors from purchasing the product in cheaper markets
Absorption Target Pricing
- Sets price to cover variable costs, absorb fixed costs, and achieve a desired profit based on sales estimates
- Formula: Absorption Target Price = Variable Cost + Fixed Cost + Net Profit
- Example: A business selling 100 chairs at 20variablecost,20 variable cost, 20variablecost,1000 fixed costs, and a target net profit of 3,400resultsinanAbsorptionTargetPriceof3,400 results in an Absorption Target Price of 3,400resultsinanAbsorptionTargetPriceof64
Marginal Cost Pricing
-
Short-term strategy where price is set based on the cost of each additional unit, which may be higher or lower than the average cost
-
Focuses on the cost of producing one extra unit
-
Two primary situations:
-
Unused production capacity: Reduces price to near variable cost to utilize existing resources
-
Increased cost for supplying an extra unit: May increase price due to higher costs for additional units
-
Examples:
-
Reducing the price of oranges nearing their expiration date (variable pricing)
-
Filling empty seats on an airplane before departure (unused capacity)
-
Increasing the price of bottles to a customer who needs last-minute additional orders beyond their typical bulk order (increased cost)
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
This quiz covers various pricing strategies including variable pricing, price differentiation, and absorption target pricing. Understand how different approaches to pricing can impact sales and profit margins in a business context.
